This article first appeared in The Edge Malaysia Weekly on December 14, 2020 - December 20, 2020

Malaysian employers need to come to terms with the government’s decision to wean the country off cheap foreign labour, which has depressed wages here. Yet, businesses cannot be expected to suddenly operate without them, which was why it was no surprise that the government rescinded the controversial directive in July to freeze the hiring of foreign labour, except for the agriculture, construction and plantation sectors.

The need to strike the right balance is why policymakers should seriously consider the proposal to raise foreign worker levy on a staggered and tiered basis towards achieving the country’s development goal. At a webinar last week, Federation of Malaysian Manufacturers (FMM) past president Tan Sri Yong Poh Kon proposed that Malaysia look to the Singapore model, where companies with more foreign workers as a percentage of their respective total workforce pay a higher levy for each foreign worker hired. The rates are also raised every year to gradually steer employers from an over-reliance on migrant workers.

To get buy-in from businesses, Yong suggested that 75% of the levy paid by employers be claimable for investments in automation that raises productivity, as well as other initiatives tbeneficial to the local economy.

Some may recall that FMM had, in February 2016, objected to the “sudden and steep increase” in foreign worker levy from RM1,250 to RM2,500 per worker per year.  It had hoped that the government would consider the economic situation and that any policy change should allow enough time for businesses to adjust. Yong’s suggestion fits the bill.

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